Constellation Brands buys Vincor for nearly $1.1 billion

Constellation Brands buys Vincor

The wine business looked a little bit less fragmented Monday as Constellation Brands Inc., the world's biggest winemaker, finally struck a deal to acquire Canada's Vincor International Inc. for nearly $1.1 billion.

Even with its newest trophy, Constellation will control less than 5 percent of the global wine market.

"There's very little concentration in the wine world right now, and so it's quite conceivable that there will be more acquisitions by Constellation after this one," said Tim Ramey, an analyst for D.A. Davidson & Co. in Lake Oswego, Ore.

"Wine will always be way more fragmented than, say, carbonated soft drinks. You want your Coca-Cola to taste the same whether you're here, in Mexico City or in Canada. But you really don't like sameness in wine. Wine is all about terroir and place and vintage and varietal and ... that seems to encourage diversity."

Constellation, the only beer, wine and spirits company based in the United States, had dropped months of hostile bidding for Vincor in December after shareholders of Canada's No. 1 winemaker passed on a $1 billion cash bid.

Under an agreement disclosed Monday, Constellation will pay 36.50 Canadian dollars ($31.07) per share, or about $1.09 billion, in cash for Vincor's 34.8 million shares outstanding. In addition, Constellation will assume about 250 million Canadian dollars ($220 million) in debt.

Constellation's A shares rose 20 cents, to close at $25.25 on Monday on the New York Stock Exchange.

The deal, expected to close in June, was approved by both companies' boards but still must be approved by shareholders.

"What makes a deal work, and a deal happen, is when they're meant to be and they're good for both shareholders. And this was just clearly meant to be," Constellation's chief executive, Richard Sands, told analysts in a conference call.

Constellation said the price represents a 15.9 percent premium to Vincor's closing price Friday and a 55.5 percent premium to Vincor's price on Sept. 27, before Constellation made its initial offer. The deal will boost its earnings per share by an estimated 2 cents to 3 cents in fiscal 2007, Sands said.

Analysts surveyed by Thomson Financial expect Constellation to earn $1.77 per share in 2007. The company releases its fourth-quarter earnings for 2006 on Thursday.

"We are pleased that Constellation has offered a value that fully recognizes our strong brands, exceptional work force and significant international growth opportunities," said Vincor's chief executive, Donald Triggs.

Based in Mississauga, Ont., near Toronto, Vincor is North America's fourth-largest wine producer with $565 million in fiscal 2005 revenue and 2,000 employees in Canada, California, Washington state, New Zealand, Australia and South Africa. Its brands include Inniskillin, Jackson-Triggs, Toasted Head and Kumala.

Vincor's operations will be managed as a separate entity -- a model Constellation has stuck with during an 18-year-long acquisition spree.

The takeover expands Constellation's presence in the fastest-growing wine sector -- the premium end where prices run from $12 to $40 -- "so it tilts the whole portfolio to a faster-growth direction," Ramey said.

"The magic of the Constellation acquisition model," he said, is "they let the winemakers continue to do exactly what they have always done, so they don't change the perception of the product in the marketplace. But they recognize they can buy a cork cheaper, a glass cheaper, packaging and shipping cheaper, so they bring cost synergies to those businesses as well as the distribution centers."

Founded in 1945 in upstate New York's grape-growing Finger Lakes region, Constellation quietly became the world's No. 1 winemaker in 2003. It leaped further ahead of longtime American wine leader E.& J. Gallo Winery when it bought Robert Mondavi Corp. for $1.3 billion; its sales reached $4 billion last year.

Based in the Rochester suburb of Fairport, Constellation boasts more than 200 brands ranging from jug wines to coveted California reds, beer imports such as Corona and St. Pauli Girl, and liquors such as Fleischmann's vodka, Skol gin and Black Velvet Canadian whiskey.